Friday, September 9, 2011

Quote of The Day

Jeremy Warner on Osama's legacy (i.e.: the banking/sovereign debt crisis):

"There comes a point when the debt overhang gets so big that nothing, other than capitulation by creditors and a massive programme of debt forgiveness, is capable of resolving it. As things stand, the mechanisms don't exist to allow for such a resolution.

The normal conduit is currency adjustment, which has the effect of devaluing the external indebtedness of deficit nations and clawing back lost competitiveness. But that cannot happen within the eurozone, while the mercantilism of Chinese economic policy prevents in the Asia/America trading relationship either.

The same sort of currency wars that plagued the interwar years are already fast establishing themselves. Horrified by the effects of its safe haven status on industrial profitability, Switzerland has promised to print as much money as it takes to depress the Swiss franc to more tolerable levels.

Repeated rounds of quantitative easing in the US and UK have much the same effect of debauching the currency and gaining trade advantage. It can only be a matter of time before Japan follows Switzerland into similar action."

1 comment:

  1. Quantitative easing may well have been the answer to the lack of demand in the Great Depression, and the mistake may have been not turning to it quickly enough.

    Now, in the circumstances of the current 'Great Recession,' QE looks like it's the wrong tool for the job. People and governments have realised they loaded-up on debt, and the last thing they need is still more of it. Yet, this is what they are being offered.

    Our own government, instead of tackling the real colossi of public expenditure - the public sector pay bill and welfare spending - looks here there and everywhere for someone else to carry the burden, whether in the form of higher taxation or external funding, or, failing that, to make the cuts for them.

    Taking a blunt axe to all public spending would be a stupid mistake, but Irish citizens are surely fed-up waiting for someone to act upon this issue with the seriousness it deserves.

    ReplyDelete

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